In the days leading up to JPMorgan Chase & Co.’s bombshell announcement of $2.3 billion in trading losses, chairman and chief executive officer Jamie Dimon faced a delicate predicament. His executives had scheduled visits with banking analysts to discuss the state of affairs at JPMorgan—the company whose stock Mr. Dimon knew was sure to plummet when news of the trading losses were disclosed. These weren’t just any trading losses, of course; they were losses incurred on credit derivatives bets placed by a mysterious trader nicknamed the London Whale and Voldemort by the financial press. And it wasn’t just any bet—it was the same trading position that Mr. Dimon had described as “a complete tempest in a teapot” not one month previous.
“On the inside, Dimon must have been trying to figure out what was happening with the trade, and what to do about it,” said Frank Partnoy, a former Morgan Stanley investment banker, currently a law professor at the University of San Diego. “It’s like he has an inside personality, and an outside personality that he shows the world, and the two things must have been in conflict, like what politicians deal with when they’re handling a crisis.”
Mr. Dimon’s “outside personality”—supremely confident, sharp-tongued, charismatic—has long made him among the most charming figures on Wall Street (some might say one of the only charming figures on Wall Street). He’s the industry’s swaggering posterboy, the brilliant manager who sidestepped the worst of the subprime disaster, a fierce opponent of regulation meant to curb proprietary trading and a Teflon target for the financial sector’s critics. But in the wake of JPMorgan’s Thursday evening announcement, a flood of Dimonfreude ensued.
Whatever Mr. Dimon was thinking on the inside, it seemed clear that his oft-admired bluster had contributed to JPMorgan’s public relations disaster, and just as clear that it represented a crucial weapon in the firm’s fight to save its reputation and swooning market share. The pivot, when it came, was exquisitely executed: “These were grievous mistakes,” Mr. Dimon said with what seemed the epitome of corporate candor. “They were self-inflicted, we were accountable and we happened to violate our own standards and principles by how we want to operate the company. This is not how we want to run a business.”
For years, Mr. Dimon’s straight-talk express has made him a nightmare for publicists and recent months have been no exception. In January, he launched a rant against bureaucratic regulation, suggesting that a strongman approach could prevent overlapping rules from strangling growth. “It’s quite clear that regulatory policy, government policy, central bank policy, it’s not coordinated,” he said. “You could fix all this if someone was in charge.” In February, he took a playful swipe at the press, noting that compensation ratios in the newsgathering business exceed the 34 percent share of revenues JPMorgan paid investment bankers last year. “Newspapers—I went and got this one day just for fun—42 percent payout ratio, which I just think is just damned outrageous.”
The press didn’t have to wait long to settle the score. The Times published 11 stories on JPMorgan’s trading losses on Friday alone. Then Sen. Bernie Sanders called for the break-up of the six largest U.S. banks, and Rep. Barney Frank declaimed on the risk merchants’ inability to learn from past mistakes. But in a public sphere that tends to group banks into the good (JPMorgan, Wells Fargo) and bad (Bank of America and Goldman Sachs, though usually for different reasons), Mr. Dimon’s past performances have generally stood to enhance his firm’s reputation.
It’s not as though JPMorgan maintained a pristine record through the financial crisis. The firm agreed to provide as much as $5.29 billion in homeowner benefits to settle the state attorneys general’s robo-signing suit and was ordered to pay $373 million to American Century Investments after arbitrators said JPMorgan breached its contract to promote American Century’s products.
“If you look at Goldman and JPMorgan side by side, they do the same thing, they’re in the same businesses, they pay themselves in roughly the same way,” said Duff McDonald, who chronicled Mr. Dimon’s rise to Wall Street’s apex in his book Last Man Standing. “But if you look at the PR, he’s a jujitsu master. People just like him.”
“Of all the bankers to play, I think I got a good one,” said Bill Pullman, who portrayed Jamie Dimon in the HBO adaptation of Aaron Ross Sorkin’s Too Big to Fail and who was busy promoting his new NBC series 1600 Penn. Praising “his comfort in his own skin,” Mr. Pullman noted that Mr. Dimon “is both capable of strong decisions but also humble. He’s very human.”
The fallout from JPMorgan’s Thursday evening disclosure continued through the weekend. Mr. Dimon rushed to re-tape a weekend appearance on Meet the Press, and the SEC launched an investigation. Ina Drew, JPMorgan’s chief investment officer and one of the most powerful women on Wall Street, resigned on Monday, and rumors swirled that her entire London operation might be next. On Tuesday morning, President Barack Obama went on The View to resume his intermittent call for banking reform. At JPMorgan’s annual shareholder meeting the same day, Mr. Dimon said the firm may endeavor to claw back bonuses as it seeks to set things right with investors.
Though Wall Street maintained its habit of staying quiet publicly when a rival is down, banking analysts worried about reputational risk and suggested Mr. Dimon tone down his public profile. Nancy Bush, an independent bank analyst and founder of NAB Research, went so far as to suggest the previously unthinkable: that the world’s premier banking franchise should take a page from the playbook of its embattled neighbor to the south.
“The big banks should be doing what Bank of America is doing—go about the business of de-risking and stay out of the spotlight,” Ms. Bush told The Observer. “Say what you will about Brian Moynihan, but in the very best of circumstance he would not be out there trying to shape public opinion.”
From the moment the London Whale emerged in the public eye in April, the forensic technicians of the financial press have poured over the known details of the trade. Federal investigators are now lining up to answer several key questions: Was the firm merely hedging “downside risk,” as chief financial officer Doug Braunstein suggested in April, or had JPMorgan transformed its chief investment office into a profit center?
It would be just as interesting to learn how the firm’s blue-ribbon risk management team blundered in such a familiar manner: Like Long-Term Capital Management, Amaranth Advisors and countless others, JPMorgan’s chief investment office assumed a massive position, then watched helplessly as competitors attacked the firm’s holdings. “We see this time and again,” said Bert Ely, chief executive officer of bank consulting firm Ely & Co. “JPMorgan became the market, and then they were sunk.”
“There are very few people who are good with details and the big picture, and Jamie is one of them,” Mr. McDonald said. “That’s why this is so jarring: How did it get by him?”
And how did an executive who made his reputation managing details come to downplay the importance of the London Whale’s trade before he understood the consequences fully?
“It’s possible that he just shot from the hip,” Mr. Ely said, “and that he should have been more cautious. He may be more cautious now.”’